Author: Yang Xiaohui

Once a leading enterprise in the industry, the current doubts about Evergrande from its former praises are really lamentable.

Evergrande, the struggling automaker facing unprecedented difficulties, is making efforts to convey confidence to the outside world. In just three months, the first vehicle of its Hongchi electric car will roll off the assembly line at its Tianjin factory.

On the afternoon of October 11, at a strategic cooperation partner conference held at Evergrande’s Tianjin production base, Liu Yongzhuo, the president of Evergrande Auto Group, reported on the progress of Evergrande’s car-making, revealing that its Hongchi 5 will be unveiled in Tianjin early next year.

According to official sources, nearly 200 executives of strategic partners, including Boshi, Antolin, Hitachi, Hagemeyer, and other well-known vendors, attended Evergrande Auto’s strategic partnership conference on October 11 at the Binhai New Area in Tianjin.

These partners stood by Evergrande, sending out obvious signals of confidence to the outside world.

However, Evergrande Auto’s recent experience has not been so smooth. Public information shows that due to unpaid equipment supplier payments, the Evergrande Auto Tianjin factory production line revamp project has recently come to a virtual standstill.

With a shortage of personnel, funds, and equipment, how can Evergrande Auto guarantee the launch of its Hongchi 5? What is its success rate in this “battle”?

The Dream of Buying into Car Making

Evergrande’s automotive history can be traced back to June 25, 2018. The company spent HKD 6.747 billion to acquire 100% of the shares of Hongkong Heng Chi Holdings Limited, and thus obtained 45% of the shares of SmartKing and became the largest shareholder of Faraday Future (FF). This has been going on for 40 months now.

However, Evergrande Auto’s real fame in the automotive industry began on November 12, 2019. After making a series of acquisitions to open up its supply chain, Evergrande Auto held a global strategic cooperation partner summit for its new energy vehicles in Guangzhou. More than 1,100 CEOs and executives from 206 leading car companies around the world attended the summit.

At the summit, Xu Jiayin mentioned Evergrande’s large-scale plans, strategies, and operations, and pointed out that Evergrande had purchased all core technologies that were available to buy and had also initiated cooperation for those that were not available. In the first ten months of that year, Xu Jiayin and Evergrande executives visited 23 countries and 47 cities, and signed strategic agreements with 58 leading companies in the automotive industry chain as well as with the top five companies in terms of engineering technology research and development.

For a time, Evergrande became the hottest topic in the automotive industry, with debates within the industry revolving around two issues: “Is Evergrande grabbing land or making cars?” and “Can you make a good car just by having money?”

Evergrande’s “domineering” is almost known to everyone. In 2010, Evergrande took over Guangzhou Football Club. Xu Jiayin said that he would win the Chinese Super League championship within three years and the Asian Championship within five years. The fact proved that Xu Jiayin really did it. Guangzhou Evergrande Football Club returned to the Chinese Super League successfully that year, won the Chinese Super League championship in the second year, reached the Asian Championship in the third year, and won the Asian Championship in the fourth year. This case proves that money can indeed “buy” better talents and more time, and make time fold.

As the dominator of Chinese football, Guangzhou Evergrande once created a record of seven consecutive championships in the Chinese Super League and won 16 championships in 9 years to establish its own dynasty, which can be called the “Evergrande miracle”. From China League One to the Chinese Super League, then turned to a luxury team in the Chinese Super League, and established its rule. Guangzhou Evergrande Football has taken a unique path and built a team of kings.

Obviously, Evergrande intends to replicate the miracle in the football field in the automotive industry. As we all know, Evergrande’s basic industries are real estate, and tourism and health are the two wings of diversified strategies. In order to continue to deepen its diversification strategy, Evergrande has started to cross-border and make cars, making the automotive industry the leading industry.

Xu Jiayin, Chairman of Evergrande Group, unveiled the secret of Evergrande’s “overtaking on the curve” at the “Global Strategic Cooperation Partner Summit of Evergrande New Energy Automobile Group”, summed up as a 15-character mantra: buy, merge, circle, large, good. In other words, Evergrande’s road to car making is an unprecedented new road, and Xu Jiayin is going to open up a brand new road to achieve Evergrande’s “overtaking on the curve” in the automotive industry. AsIn November 2019, Evergrande held a global strategic partnership summit for new energy vehicles and announced its goal of becoming the world’s largest and strongest new energy automobile group within 3-5 years. The company also plans to achieve a production scale of 1 million vehicles in 2-3 years and over 5 million vehicles in 15-20 years.

Xu Jiayin revealed on-site that Evergrande plans to invest 45 billion yuan in the automotive industry within three years, including 20 billion yuan in 2019, 15 billion yuan in 2020, and 10 billion yuan in 2021. The first model of Evergrande’s Hengchi brand, Hengchi 1, is scheduled to debut in the first half of next year and mass production will begin in 2021.

On August 3, 2020, Evergrande officially released the first six models of its Hengchi brand, covering the sedan, coupe, SUV, MPV, and crossover markets from A to D levels, and launched nine new models at the 2021 Shanghai Auto Show.

Although everything seems to be going smoothly, due to continuous investment in car manufacturing, Evergrande Auto’s losses in the first half of this year expanded to 4.82 billion yuan, compared with a loss of 2.46 billion yuan in the same period last year.

On June 29, 2021, Three Trees Coatings, an upstream supplier that has cooperated with Evergrande for many years, even directly announced that China Evergrande’s overdue bill amount had reached 51.37 million yuan, becoming a well-known “notice of collection” event in the industry.

Subsequently, Evergrande was exposed to a series of financial issues, such as frozen bank deposits, the sale of shares of subsidiary Hengteng Network, and contact with independent third-party investors to discuss the sale of part of the company’s assets.

In the face of financial constraints, Evergrande Auto did not give up. In September last year, Evergrande Auto announced its plan to seek listing on the science and technology innovation board and raised funds for new energy vehicle project research and development, production, and marketing network construction. The company also received support from Tencent, Didi, Sequoia Capital, and other investors in the pre-IPO financing phase.

After a year, Evergrande Group and Evergrande Auto have gone through significant changes in their external environment. On September 24, Evergrande Auto announced that it had suspended work on some related projects due to liquidity problems. Evergrande Auto is now actively seeking “self-rescue,” contacting potential strategic investors, and discussing the sale of part of its wellness valley project and overseas assets to improve overall efficiency and supplement operating funds for the Evergrande New Energy Auto Group.On September 29, 2021, the international rating agency Fitch Ratings released a credit report and downgraded China Evergrande Group and its subsidiaries, Evergrande Real Estate Group Limited and Tianji Holdings Limited’s long-term foreign currency issuer default rating (IDR) from “CC” to “C”, confirming China Evergrande and Tianji Holdings’ senior unsecured rating at “C” and the recovery rating at “RR6”. In fact, 22 days ago, based on the expectation that Evergrande Group may face a “certain form” of debt default, Fitch had already downgraded Evergrande Group’s rating from “CCC+” to “CC”. The two downgrades within 22 days indicate that Evergrande Group’s debt situation has deteriorated considerably.

Currently, Evergrande Group is deeply mired in a debt crisis and Evergrande Auto relies heavily on its parent company’s survival. Evergrande Group’s debt problems will definitely affect the planning of Evergrande Auto. This is beyond doubt.

Can Evergrande Auto emerge from its darkest hour?

Recently, Evergrande Auto announced that it plans to grant 32.4 million shares of stock options to three directors and over 3,000 researchers to stabilize its core technology team.

Evergrande Auto is still facing challenges such as funding shortages. Xu Jiayin, chairman of Evergrande Group, said in a “Letter to the Family” written to Evergrande employees that “the company is currently facing unprecedented difficulties, and all Evergrande employees are facing unprecedented challenges” and “I firmly believe that Evergrande will be able to overcome this crisis as quickly as possible and accelerate the resumption of work and production.”

At the strategic cooperation partner conference mentioned in the beginning, Liu Yongzhuo, president of Evergrande Auto, stated that Evergrande Auto has launched a three-month offensive to ensure that the first model of Hengchi will be offline at the Tianjin factory early next year. Evergrande Auto will ensure the achievement of the Hengchi production target with the greatest determination and effort.

Public information shows that the Evergrande Tianjin factory is recruiting a large number of technical personnel such as stamping workshop, body workshop, painting workshop, assembly workshop, quality inspection, equipment and facility operation maintenance, logistics and other production site-related technical positions.

To ensure that the first model of Hengchi can be successfully produced, Evergrande Auto has gathered core R&D teams from Shanghai, Guangzhou, and Shenzhen, and sent them to support the Evergrande Auto Tianjin production base. Some suppliers and outsourced construction workers affected by funding have also resumed work one after another.

According to public reports, the painting workshop, welding workshop, and assembly workshop in the Evergrande Auto Tianjin factory are still under construction, and some production equipment has not yet been installed.

When faced with a debt crisis, the key to whether Hengchi Auto can achieve mass production as planned depends on Evergrande’s determination to enter the auto industry.Unlike the “high turnover” model in the real estate industry, the traditional manufacturing industry needs to be steady and stable. Take the leading electric car maker, Tesla, as an example. It took them 17 years to achieve annual profitability. This is undoubtedly a challenge for those who are brainstorming for short-term returns.

In addition, whether Evergrande can make good cars may have already been hinted in the process of “buying, buying, buying”.

This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.